Shadow Treasurer Joe Hockey has made an astonishing commitment for a future Coalition Government with his “absolute guarantee” that the Coalition tax take will be less than under Labor.
Interviewed on Sky TV, Mr Hockey said:
- “we'll deliver lower taxes than under Labor, I can give you that absolute guarantee.”
I suspect Mr Hockey does not know what he has just guaranteed to deliver.
By way of background: For the most recent year that we have final data for, that is, 2010-11, the tax to GDP ratio was 20.0%.
As the economy recovers, the stimulus is unwound and tax levels pick up, the tax to GDP ratio will rise to 21.2% in the current financial year, 2011-12.
Let’s be generous and give the benefit of the doubt to Mr Hockey and as Treasurer, when he “delivers lower taxes”, he will keep the tax to GDP ratio at or a touch below 21.2% of GDP and not hold him to the 20.0% achieved in 2010-11.
Using the forward estimates from the MYEFO (the latest available data of course), if Mr Hockey were to reduce the tax to GDP ratio to 21.2%, as guaranteed, it would mean the tax take of the Government would be $17.7 billion lower in 2012-13, $26.2 billion lower in 2013-14 and $27.6 billion lower in 2014-15.
These are absolutely staggering numbers.
They total an amazing $71.5 billion in just three years.
It means that with no other changes, the Budget would be in deficit in all three of those years rather than surplus: We would see a deficit of $16.2 billion in 2012-13 (against a current surplus projection of $1.5 billion); a deficit of $24.3 billion in 2013-14 (against a surplus of $1.9 billion) and a deficit of $23.1 billion in 2014-15 (against a surplus of $3.1 billion).
Oh and before he or anyone gets too irate, can I point out that the average tax to GDP ratio for the period 2008-09 to 2011-12 is 20.8% - so even lower than I assume Mr Hockey has guaranteed any Coalition Government would deliver.
Can my media friends out there to ask Mr Hockey what means with this guarantee? What is the number, what does it mean? If I am wrong with my interpretation, I will publish a correction, of course.
Or is it just another glib grab?